Page 1
COMMERCIAL-IN-CONFIDENCE
29 June 2011
ISSUE 2
COMMERCIAL-IN-CONFIDENCE UNCONTROLLED COPY IF PRINTED
Operational Procedure: Asset: Capitalisation
CEOP2416
Before you begin …
1 CHECK that this printed document is the most recent version before you use it
● The online version of this document is the current version.
2 DO NOT unlawfully disclose any restricted information in this document
● To see how the law applies to you:
○ Employee: Read your contract of employment with Essential Energy
○ Contractor: Read your contract of engagement with Essential Energy
○ Sub-contractor: Read your contract with the contractor engaged by us
○ Accredited Service Providers: comply with Essential Energy policies, state acts and
regulations.
Page 2
OPERATIONAL PROCEDURE - Asset: Capitalisation
COMMERCIAL-IN-CONFIDENCE CEOP2416
29 June 2011 - Issue 2 Approved By: Executive General Manager Finance & Risk Page 2 of 18
COMMERCIAL-IN-CONFIDENCE UNCONTROLLED COPY IF PRINTED
Summary
The Asset Capitalisation policy aims to:
ACHIEVE a consistent interpretation of capital expenditure across all areas of Essential Energy
ALIGN the accounting for capital expenditures for both management decision making
(Commercial Accounting) and external financial reporting (Financial Accounting)
MEET the requirements of NSW Treasury‟s Guidelines for Capitalisation of Expenditure in the
NSW Public Sector (TPP 06-6), Australian equivalents to International Financial Reporting
Standards (AIFRS), and Urgent Issues Group (UIG) Abstracts.
Positions and Responsibilities
Key positions Responsibilities
Finance Team All Sections
Executive Management, Regional General Managers,
General Managers, Group Managers, Area Managers,
Business Performance Managers, Team Leaders and
Work Schedulers, Purchase Requisitioners
4
Contacts
Position Extension number
Group Manager – Financial Accounting & Treasury 8230
Senior Financial Accountant – Capitalised Assets 8646
Page 3
OPERATIONAL PROCEDURE - Asset: Capitalisation
COMMERCIAL-IN-CONFIDENCE CEOP2416
29 June 2011 - Issue 2 Approved By: Executive General Manager Finance & Risk Page 3 of 18
COMMERCIAL-IN-CONFIDENCE UNCONTROLLED COPY IF PRINTED
CONTENTS PAGE
1 INTRODUCTION ............................................................................................. 4
2 WHY THESE INSTRUCTIONS ARE IMPORTANT ................................................... 4
3 CHALLENGES ................................................................................................ 4
4 THE PROCEDURES ......................................................................................... 5
4.1 Capitalisation Threshold .................................................................................. 5
4.2 Asset Definition ............................................................................................. 5
4.3 Asset Recognition .......................................................................................... 6
4.3.1 Assets constructed for own use ................................................................... 6
4.3.2 Asset Replacement .................................................................................... 6
4.3.3 Asset Enhancement ................................................................................... 7
4.3.4 Gifted Assets ............................................................................................ 7
4.3.5 Training ................................................................................................... 8
4.4 Maintenance ................................................................................................. 8
4.4.1 Major Periodic Maintenance (MPM)............................................................... 8
4.5 Information Technology Assets (IT Assets) ....................................................... 8
4.5.1 Research Phase of Internally Generated Intangible Assets .............................. 9
4.6 Spares for Plant and Equipment ....................................................................... 9
4.7 Recording of Assets ........................................................................................ 9
4.7.1 Work in Progress (WIP) - Projects ............................................................... 9
4.7.2 Asset Class ............................................................................................... 9
4.7.3 Depreciation ............................................................................................. 9
4.7.4 Purchasing – „Non- Project‟ Assets .............................................................. 10
4.8 Capitalisation Checklist .................................................................................. 10
4.9 Depreciation Rates ........................................................................................ 16
4.10 Expenditure Classification Decision Tree .......................................................... 17
5 REFERENCES ................................................................................................ 18
6 REVISIONS .................................................................................................. 18
Page 4
OPERATIONAL PROCEDURE - Asset: Capitalisation
COMMERCIAL-IN-CONFIDENCE CEOP2416
29 June 2011 - Issue 2 Approved By: Executive General Manager Finance & Risk Page 4 of 18
COMMERCIAL-IN-CONFIDENCE UNCONTROLLED COPY IF PRINTED
1 INTRODUCTION
The objectives of this policy are:
ACHIEVE a consistent interpretation of capital expenditure across all areas of Essential
Energy
ALIGN the accounting for capital expenditures for both management decision making
(Commercial Accounting) and external financial reporting (Financial Accounting); and
MEET the requirements of NSW Treasury‟s Guidelines for Capitalisation of Expenditure
in the NSW Public Sector (TPP 06-6), Australian equivalents to International Financial
Reporting Standards (AIFRS), and Urgent Issues Group (UIG) Abstracts.
The policy applies to all areas of Essential Energy and is effective from 1 July 2009. This
policy should be read in conjunction with other Essential Energy policies, in particular:
CEOP2008 - Network: Capital Expenditure
CEOP2191 – Corporate Finance: Business Case
CEOP8019 - Networks: Capital Contributions
CEOP8018 – Networks: Asset Management
CEOP2133 – Disposal: Management of Unserviceable Distribution Transformers
CEOP2438 – Procurement: Corporate Procurement.
This policy does not address:
Assets or maintenance in relation to Australian taxation laws
Allocation of overheads to capital projects.
2 WHY THESE INSTRUCTIONS ARE IMPORTANT
This document is designed to ensure consistency and create one point of reference for the
treatment of Capital expenditure in Essential Energy.
3 CHALLENGES
Provide consistent interpretation of capital expenditure across all areas of Essential
Energy
Align the accounting for capital expenditures for both management decision making
(Commercial Accounting) and external financial reporting (Financial Accounting)
Ensure we adhere to the NSW Treasury‟s Guidelines for Capitalisation of Expenditure
in the NSW Public Sector (TPP 06-6), Australian equivalents to International Financial
Reporting Standards (AIFRS), and Urgent Issues Group (UIG) Abstracts.
Page 5
OPERATIONAL PROCEDURE - Asset: Capitalisation
COMMERCIAL-IN-CONFIDENCE CEOP2416
29 June 2011 - Issue 2 Approved By: Executive General Manager Finance & Risk Page 5 of 18
COMMERCIAL-IN-CONFIDENCE UNCONTROLLED COPY IF PRINTED
4 THE PROCEDURES
Executive Management, Regional General Managers, General Managers, Group Managers,
Area Managers, Business Performance Managers, Team Leaders and Work Schedulers,
Purchase Requisitioners
4.1 Capitalisation Threshold
Expenses can be classified as either operating or capital expenditure. The classification of
the expenditure is based on whether future economic benefits will flow to the entity as a
result of the expenditure (Refer to Section 4.4). Once the classification of the expense has
been determined as capital or operating, the next step is to identify whether the type of
expense relates to Network assets or Non-Network assets.
Essential Energy has set a capitalisation threshold of $600 for Non-Network assets. This
means that all non-Network asset expenditure in excess of $600 are to be treated as
capital as they are expected to provide future economic benefits for more than one financial
year.
When applying the capitalisation threshold the costs of the assets or parts of an asset that
form part of a network (eg computer system and office furniture) should be aggregated
together. The dollar value by itself does not indicate the nature of the expenditure. Please
note if the dollar value of the group of assets is greater than $600, then a project
number must be assigned to the expenditure.
Non-Network asset expenditure below the capitalisation threshold are expensed.
The Capitalisation threshold does not apply to Network assets. If the asset expenditure
relates to the Network or Network assets, then review of the criteria as set out in section
4.4 of this policy must be undertaken to determine whether the expense is operating or
capital.
4.2 Asset Definition
An „Asset‟ is defined as a resource controlled by an entity as a result of past events and
from which future economic benefits are expected to flow to the entity.
Essential Energy assets are defined as either complex or component assets. For example:
The electricity network is a complex asset. The component assets to the network include
substations, HV lines, LV lines and metering. Each of these component assets can be
broken down into further component assets (e.g. feeders, poles, wires, and switchgear).
A component asset has a useful life that is materially different than its complex asset. The
assessment of whether expenditure is capital or maintenance (i.e. operating expenditure) is
performed at the component asset level where the useful life of the asset is materially
different to the complex asset. For example:
A pole and its assemblies is a component asset of a complex asset being a feeder. The
useful life of a pole is generally shorter than the useful life of the entire line. Asset related
expenditure is assessed at the component asset level. In consideration of Essential
Energy‟s business processes and the monitoring of business performance, a more reliable
unit of measurement when making Network capital expenditure decisions is the key
component asset level eg. Poles, Switchgear, Transformers, Reclosers and Regulators and
Conductors.
Page 6
OPERATIONAL PROCEDURE - Asset: Capitalisation
COMMERCIAL-IN-CONFIDENCE CEOP2416
29 June 2011 - Issue 2 Approved By: Executive General Manager Finance & Risk Page 6 of 18
COMMERCIAL-IN-CONFIDENCE UNCONTROLLED COPY IF PRINTED
4.3 Asset Recognition
Assets are initially measured at cost being the amount of cash or cash equivalent paid or
the fair value of other consideration given to acquire the asset at the time of its acquisition.
The cost of a new asset purchase comprises:
(a) its purchase price, including import duties and non-refundable purchase taxes,
after deducting trade discounts and rebates
(b) any costs directly attributable to brining the asset to the location and condition
necessary for it to be capable of operating in the manner intended by management;
and
(c) the initial estimate of the costs of dismantling and removing the item and restoring
the site on which it is located.
Examples of directly attributable costs are:
Costs of employee benefits arising directly from the construction or acquisition of the
item of property, plant and equipment
Costs of site preparation
Initial delivery and handling costs
Installation and assembly costs
Costs of testing whether the asset is functioning properly
Professional fees.
4.3.1 Assets constructed for own use
Assets that are constructed by Essential Energy (using employees, third party contractors,
or a combination of both) are capitalised.
These assets are typically network related, but can include the development of IT assets
(e.g. computer software).
The cost of these assets may include:
Directly purchased physical assets and associated incidental costs
Labour and supervision costs up to stage when asset is ready for use in location and
condition intended by management
Costs of design and technical assistance
Internal and external plant hire costs
Transfers from inventories
Directly attributable overheads up to stage when asset is ready for use in location and
condition intended by management.
4.3.2 Asset Replacement
All expenditure relating to the replacement of an asset is capitalised to the extent that the
asset:
(a) has reached the end of its useful life; or
(b) has not reached the end of its useful life but the replacement will result in an
increase or improvement to the asset‟s current:
Service capacity
Service quality; or
Page 7
OPERATIONAL PROCEDURE - Asset: Capitalisation
COMMERCIAL-IN-CONFIDENCE CEOP2416
29 June 2011 - Issue 2 Approved By: Executive General Manager Finance & Risk Page 7 of 18
COMMERCIAL-IN-CONFIDENCE UNCONTROLLED COPY IF PRINTED
Useful life.
This is determined at the component asset level. For example:
The electricity network (complex asset) will probably never be replaced in its entirety.
Replacement would take place at the lower component level being the poles and wires, etc.
Specific examples of asset replacement that are to be capitalised include:
Pole replacement (including ancillary assemblies)
Service cable replacement
Replacement of street lighting fittings
Air break switch replacement.
Refer to further examples in section 4.9 of this policy. The examples above are capitalised
to the extent that the asset is at the end of its useful life or that the replacement will result
in an increase in service capacity, service quality, or useful life (where the asset has not
reached the end of its useful life).
4.3.3 Asset Enhancement
Asset related expenditure is capitalised when and only when there is an increase or
improvement to a component asset‟s current:
Service capacity
Service quality; or
Useful life.
Asset enhancement includes Augmentation and Refurbishment. Examples of asset
enhancement that are capitalised include:
Converting an old undersized overhead conductor to a new larger capacity overhead
or underground feeder
Refurbishment of distribution transformers (including refurbishment of earthing
systems)
Modification, improvement or upgrading of the functionality of an existing IT asset.
Refer to further examples in section 4.9 of this policy.
Examples of asset related expenditure that would not be classified as asset enhancement,
and is therefore operating expenditure includes:
Aesthetic improvements or beautification projects (e.g. painting)
General Defects i.e. replacing only the cross arms on the pole. If defect expenditure
included the removal of old pole, insulators, cross arms and reconductoring results in
asset enhancement then expenditure is capital.
The refurbishment of unserviceable distribution transformers is subject to specific
treatment as described in CEOP2133 – Management of Unserviceable Distribution
Transformers.
4.3.4 Gifted Assets
The recognition and measurement of gifted assets (i.e. capital contributions) is covered in
CEOP8019: Procedure Policy - Capital Contributions.
Page 8
OPERATIONAL PROCEDURE - Asset: Capitalisation
COMMERCIAL-IN-CONFIDENCE CEOP2416
29 June 2011 - Issue 2 Approved By: Executive General Manager Finance & Risk Page 8 of 18
COMMERCIAL-IN-CONFIDENCE UNCONTROLLED COPY IF PRINTED
4.3.5 Training
In accordance with accounting standards, related staff training costs is not to be included
as a cost of an item of property, plant and equipment.
4.4 Maintenance
Maintenance expenditure is not capitalised. It is treated as an expense for accounting
purposes. Maintenance expenditure will normally have the following characteristics:
Periodic, regular, and on-going
Required to ensure asset remains operational
Required to ensure the achievement of the asset‟s pre-determined service capacity
and quality; and
Required to achieve the asset‟s pre-determined useful life (i.e. there is no increase to
the asset‟s original useful life).
Examples of maintenance expenditure include:
Work to rectify a breakdown (i.e. forced maintenance)
General defects, particularly in relation to “fault emergency”
Ad hoc painting of a building
Electrical and plumbing repairs
Pole ground line inspection and treatment
Clearing of vegetation under lines (e.g. tree clearing and weed control)
Replacement of “consumable items” (e.g. globes, starters, diffusers, and gaskets) in
street lights
Filtering or changing oil in a power transformer in a zone substation.
Refer to further examples in section 4.9 of this policy.
4.4.1 Major Periodic Maintenance (MPM)
MPM can either fit the definition of routine type maintenance, which is expensed, or
represent the replacement of separately identifiable asset components, which is capitalised.
To ascertain the correct accounting treatment, each case must be assessed separately. For
example:
All of Essential Energy‟s feeders are subjected to a Reliability Centred Maintenance (RCM)
assessment every 4.5 years, on a cyclical basis. If the nature of the work falls under the
definition of asset enhancement or asset replacement (in accordance with section 4.4 of
this policy) the expenditure should be capitalised. In this case, the work is separately
identified as a component asset. If the work is purely maintenance (in accordance with this
section of the policy) the work is treated as an expense.
4.5 Information Technology Assets (IT Assets)
All IT asset expenditure, whether expended for operational use, as part of R&D projects, or
for any other purpose will be subject to the capitalisation tests described in this policy.
Page 9
OPERATIONAL PROCEDURE - Asset: Capitalisation
COMMERCIAL-IN-CONFIDENCE CEOP2416
29 June 2011 - Issue 2 Approved By: Executive General Manager Finance & Risk Page 9 of 18
COMMERCIAL-IN-CONFIDENCE UNCONTROLLED COPY IF PRINTED
4.5.1 Research Phase of Internally Generated Intangible Assets
No intangible asset arising from research (or from the research phase of an internal project)
is capitalised. Expenditure on research (or on the research phase of an internal project) is
operating expenditure when it is incurred.
4.6 Spares for Plant and Equipment
An assessment is required to be made, prior to recognition, as to whether a spare part is
considered major or not.
Spare parts and servicing equipment are usually carried as inventory and recognised in
profit and loss as consumed. However major spare parts and stand-by equipment qualify as
property, plant and equipment where they are expected to be used during more than one
period.
Spare parts that are for a particular asset, or class of assets, and which would become
redundant if that asset or class was retired or discontinued, are to be included in the cost of
the asset or class to which the asset relates. The depreciable amount of spares must be
allocated over the useful life of the asset or the class. This is because spares that can be
used only in connection with a particular non-current asset do not have useful lives of their
own.
Spares are distinguished from separate components of an asset that have their own useful
lives. Spares can also be distinguished from stores and supplies that would generally be
consumed on an ongoing basis and are disclosed as inventories.
4.7 Recording of Assets
4.7.1 Work in Progress (WIP) - Projects
Assets that are recorded under „Project‟ numbers are normally Network assets. However,
non-network assets may also be recorded under a project number where the aggregate cost
of the expenditure is greater than $600.
When expenditure is incurred on a project asset, the asset will be initially recorded in an
appropriate WIP ledger account. This is the process of capitalisation. WIP is included in the
Property, Plant and Equipment disclosure in the Balance Sheet and is disclosed separately in
the notes to the financial statements.
4.7.2 Asset Class
When all acquisition costs have been recorded and the asset is first put to use or held ready
for use, the carrying value of the asset will be moved from WIP to an appropriate asset
class and recorded in the asset register. At this time, depreciation of the asset begins
(subject to Depreciation Conventions).
In the case of a complex asset that requires installation in successive stages, it will be
deemed to be ready for use after installation has been completed to a stage where service
or saleable product can be obtained.
4.7.3 Depreciation
The depreciation method used shall reflect the pattern in which the asset's future economic
benefits are expected to be consumed by the entity.
The depreciation method applied to an asset shall be reviewed at least at the end of each
annual reporting period and, if there has been a significant change in the expected pattern
of consumption of the future economic benefits embodied in the asset, the method shall be
changed to reflect the changed pattern.
Page 10
OPERATIONAL PROCEDURE - Asset: Capitalisation
COMMERCIAL-IN-CONFIDENCE CEOP2416
29 June 2011 - Issue 2 Approved By: Executive General Manager Finance & Risk Page 10 of 18
COMMERCIAL-IN-CONFIDENCE UNCONTROLLED COPY IF PRINTED
Refer to section 4.10 for Essential Energy‟s depreciation rates.
4.7.4 Purchasing – ‘Non- Project’ Assets
Assets that are purchased through the purchasing module are non-network assets.
When expenditure is incurred on a non-project asset through the PeopleSoft purchasing
module, the asset will initially be recorded in an appropriate capital clearing account and
subsequently added to fixed asset register via an automated asset addition process. The
purchase category and associated asset profile chosen will determine the depreciation
method.
4.8 Capitalisation Checklist
Cost Item Description Capitalise
Yes No
New Asset Purchase
Buildings
Communication bearer systems
Communications
Computer hardware – laptop
Concrete pole line
Customer meter
Fleet and fleet (heavy)
Furniture and fittings
Gas
Generation
Generation switchyard
High voltage powerline purchase
Individual assets costing less than $600
IT hardware
IT software
Land
Leasehold improvements
Motor vehicle
Office equipment purchase greater than $600
Other line
Other substation
Other transformer
Overhead line
Pole substation
Page 11
OPERATIONAL PROCEDURE - Asset: Capitalisation
COMMERCIAL-IN-CONFIDENCE CEOP2416
29 June 2011 - Issue 2 Approved By: Executive General Manager Finance & Risk Page 11 of 18
COMMERCIAL-IN-CONFIDENCE UNCONTROLLED COPY IF PRINTED
Cost Item Description Capitalise
Yes No
Pole transformer
Powerline purchase
Radio equipment/mobile phones
SCADA
Steel pole line
Street lighting overhead
Street lighting underground
Sub transmission substation
Substation, transformers and transformer bays purchases
SWER line
Telephone installations
Tools and tests equipment
Tower line
Transformers
Underground cable
Easement purchase
Zone substation purchase
Asset Constructed for Own Use
Costs of design and technical assistance
Directly attributable overheads
Directly purchased physical assets and associated incidental costs
Internal and external plant hire costs
Labour and supervision costs
Transfers from inventories
Asset Replacement
Air break switch replacement
Conductor replacement
Cross arm and insulator replacement (when completed as part of
a work pack)
Feeder circuit breaker replacement
HV switching station replacement
Pole replacement (including ancillary assemblies) plus nailing
Power transformer replacement in zone substation
Protection relay replacement
Replacement of full street lighting assembly (i.e. not just
consumables)
Page 12
OPERATIONAL PROCEDURE - Asset: Capitalisation
COMMERCIAL-IN-CONFIDENCE CEOP2416
29 June 2011 - Issue 2 Approved By: Executive General Manager Finance & Risk Page 12 of 18
COMMERCIAL-IN-CONFIDENCE UNCONTROLLED COPY IF PRINTED
Cost Item Description Capitalise
Yes No
Service cable replacement
Transformer replacement
Voltage regulator replacement
Zone substation fence replacement
Asset Enhancement
Aesthetic improvements or beautification projects (e.g. painting)
Balancing loads on feeders resulting in improved voltage balance
and tighter control of voltage received by customers (improved
service quality)
Converting an old, undersized overhead conductor to a new,
larger capacity overhead or underground feeder
Installation of power factor correction units (decreases load on
networks, decreases losses and increases and improves capacity
of supply and quality of voltage levels received by customers)
Major upgrade and expansion of zone substation
Measurable quality improvement (e.g. health or safety
improvements)
Modification, improvement or upgrading of the functionality of an
existing IT asset
Rectification of conductor defects (i.e. completed under forced
maintenance conditions)
Rectification of pole and pole attachment defects i.e. completed
under forced maintenance conditions)
Refurbishment
Refurbishment of distribution transformers (including
refurbishment of earthing systems)
Upgrading an old re-closer to a more modern device
Upgrading capacity of feeder exit cables out of zone substations
Maintenance
Painting of a building
Broken tie wire replacement
Carrying out annual “pre bush fire season” aerial patrol
Clearing of vegetation under lines (e.g. tree clearing and weed
control)
Cross arm replacement
Electrical and plumbing repairs
Filtering or changing oil in a power transformer in a zone
substation
Fitting a splice over a broken strand
Page 13
OPERATIONAL PROCEDURE - Asset: Capitalisation
COMMERCIAL-IN-CONFIDENCE CEOP2416
29 June 2011 - Issue 2 Approved By: Executive General Manager Finance & Risk Page 13 of 18
COMMERCIAL-IN-CONFIDENCE UNCONTROLLED COPY IF PRINTED
Cost Item Description Capitalise
Yes No
General defects, particularly in relation to “fault emergency”
Performing a “thermoscan” survey
Periodic testing of protection equipment
Pole ground line inspection and treatment
Repairs to customer metering equipment
Replacement or repair of “consumable items” (e.g. globes,
starters, diffusers, and gaskets) in street lights
Re-tension of a line
Page 14
OPERATIONAL PROCEDURE - Asset: Capitalisation
COMMERCIAL-IN-CONFIDENCE CEOP2416
29 June 2011 - Issue 2 Approved By: Executive General Manager Finance & Risk Page 14 of 18
COMMERCIAL-IN-CONFIDENCE UNCONTROLLED COPY IF PRINTED
Cost Item Description Capitalise
Yes No
Re-tension of a stay wire
Work to rectify a breakdown (i.e. forced maintenance)
Other asset related expenditure
Accounts payable department costs directly attributable to
construction activity
Accounts payable department costs relating to marketing,
distribution and administration
Administration and other general overhead costs
Advertising and promotional activities
Apprentice labour hours directly incurred on site construction
Apprentice training costs
Borrowing costs directly attributable to the acquisition,
construction or production of a qualifying asset
CEO and Finance Managers‟ time directly attributable to
construction activity
Claims from third parties
Costs of conducting business in a new location or with a new class
of customer
Costs of design and technical assistance directly related to a
construction contract
Costs of employee benefits arising directly from the construction
or acquisition of assets
Costs of hiring plant and equipment
Costs of moving plant, equipment and materials to and from a
contract site
Costs of opening a new facility
Costs of site preparation
Costs of testing whether a constructed asset is functioning
properly
Depreciation of idle plant and equipment
Depreciation of plant and equipment used in the construction of
network assets
Direct labour costs
Direct materials costs (incl. expenditure on spare parts that are
for a particular asset, or class of assets, and which would become
redundant if that asset or class was retired or discontinued)
Disposal costs on sale of assets (e.g. legal fees, valuation fees,
title search fees, rates)
Estimated costs of rectification and guarantee work (including
expected warranty costs) on a construction contract
Page 15
OPERATIONAL PROCEDURE - Asset: Capitalisation
COMMERCIAL-IN-CONFIDENCE CEOP2416
29 June 2011 - Issue 2 Approved By: Executive General Manager Finance & Risk Page 15 of 18
COMMERCIAL-IN-CONFIDENCE UNCONTROLLED COPY IF PRINTED
Intangible Asset research costs - Feasibility, functionality or
impact studies
In house lunches and meal entertainment
Initial delivery and handling costs
Installation and assembly costs
Insurance costs (self and public liability) that are operating in
nature and cannot be specifically identified as insurance related to
construction activity
Insurance costs that can be specifically identified as insurance
relating to construction activity
IT integration and connectivity costs
IT minor development or changes that do not significantly
increase the overall functionality of software (eg. changes to
reports or formats, screen layouts etc)
Legal fees that cannot be specifically identified as legal fees
related to construction activity
Maintenance activities (including OH&S)
Manual data entry conversion into electronic format
Preliminary network or infrastructure design
Preparation and processing of construction personnel payroll
Professional fees arising directly from brining an asset to its
working condition
Rent, land tax and council rates
Research and development costs
Selling costs
Site labour costs (including site supervision)
Staff training costs
Storage costs
User and/or technical training
Page 16
OPERATIONAL PROCEDURE - Asset: Capitalisation
COMMERCIAL-IN-CONFIDENCE CEOP2416
29 June 2011 - Issue 2 Approved By: Executive General Manager Finance & Risk Page 16 of 18
COMMERCIAL-IN-CONFIDENCE UNCONTROLLED COPY IF PRINTED
4.9 Depreciation Rates
Asset Description Depreciation
Method
Depreciation
Rate
Effective Life
Years
11 kV Overhead Line Straight Line 2.22% 45
11 kV Underground Cable Straight Line 2.00% 50
132 kV Concrete/Steel Pole Line Straight Line 2.11% 47
132 kV Other Line Straight Line 2.11% 47
132 kV Tower Line Straight Line 2.11% 47
132 kV Underground Cable Straight Line 2.11% 47
132/66/33/22/11 kV Transformers Straight Line 2.50% 40
22 kV Overhead Line Straight Line 2.22% 45
22 kV Underground Cable Straight Line 2.00% 50
33 kV Concrete Pole Line Straight Line 2.22% 45
33 kV Other Line Straight Line 2.22% 45
33 kV Underground Cable Straight Line 2.00% 50
66 kV Concrete Pole Line Straight Line 2.22% 45
66 kV Other Line Straight Line 2.22% 45
66 kV Underground Cable Straight Line 2.00% 50
Buildings Straight Line 2.50% 40
Communication Bearer Systems Straight Line 10.00% 10
Communications Straight Line 15.00% 7
Computer Hardware - Laptop Straight Line 33.33% 3
Customer Meter Straight Line 4.00% 25
DC Link Straight Line 2.11% 47
Easement Straight Line - -
Emergency Spares Straight Line - -
Fleet (Passenger) Straight Line 15.00% 7
Fleet (Light) Straight Line 15.00% 7
Fleet (Heavy) Straight Line 10.00% 10
Furniture & Fittings Straight Line 7.50% 13
Gas Straight Line 5.00% 20
Generation Straight Line 3.33% 30
Generation Switchyard Straight Line 3.33% 30
Intangibles Straight Line 25.00% or life of intangible
IT Hardware Straight Line 25.00% 4
IT Software Straight Line 25.00% 4
Land Straight Line - -
Land Under Infrastructure Straight Line - -
Leasehold Improvements Straight Line Term of lease
LV Overhead Line Straight Line 2.22% 45
LV Underground Cable Straight Line 2.00% 50
Office Equipment Straight Line 20.00% 5
Other Substation Straight Line 2.50% 40
Other Transformer Straight Line 2.50% 40
Pole Substation Straight Line 2.50% 40
Pole Transformer Straight Line 2.50% 40
Radio Equipment / Mobile Phones Straight Line 10.00% 10
SCADA Straight Line 10.00% 10
Street Lighting Overhead Straight Line 6.67% 15
Street Lighting Underground Straight Line 6.67% 15
Sub-Transmission Substation Straight Line 2.50% 40
SWER Line Straight Line 2.22% 45
Telephone Installations Straight Line 5.00% 20
Timber Poles Straight Line 2.22% 45
Tools & Test Equipment Straight Line 20.00% 5
Zone Substation Straight Line 2.50% 40
Page 17
OPERATIONAL PROCEDURE - Asset: Capitalisation
COMMERCIAL-IN-CONFIDENCE CEOP2416
29 June 2011 - Issue 2 Approved By: Executive General Manager Finance & Risk Page 17 of 18
COMMERCIAL-IN-CONFIDENCE UNCONTROLLED COPY IF PRINTED
4.10 Expenditure Classification Decision Tree
Expense: An outflow of cash which will not result in any future economic benefits beyond
the current financial year.
Asset expenditure: An „Asset‟ is defined as a resource controlled by an entity as a result
of past events and from which future economic benefits are expected to flow to the entity.
Network Asset: is the equipment, plant or building used to convey, and control the
conveyance of, Utilities (Electricity, Gas and Water) to customers. Network assets are
commonly referred to as „System Assets‟.
Non-Network Asset: is the equipment, plant or building that is used in the daily
operating activities of the entity but is not used in the direct supply of Utilities (Electricity,
Gas and Water) to customers. Examples include Land, Structures & Improvement, Office
Furniture & Equipment, Fleet, Communication plant & equipment etc. Non-Network assets
are commonly referred to as „Non-System Assets‟.
Page 18
OPERATIONAL PROCEDURE - Asset: Capitalisation
COMMERCIAL-IN-CONFIDENCE CEOP2416
29 June 2011 - Issue 2 Approved By: Executive General Manager Finance & Risk Page 18 of 18
COMMERCIAL-IN-CONFIDENCE UNCONTROLLED COPY IF PRINTED
5 REFERENCES
CEOF6631 - Finance: General Capital Expenditure Guidelines Summary - Retail
CEOF6632 - Finance: General Capital Expenditure Guidelines Summary - Infrastructure
CEOF6633 - Finance: General Capital Expenditure Guidelines Summary - Infrastructure
Operations
CEOF6634 - Finance: General Capital Expenditure Guidelines Summary - Finance and Risk
CEOF6635 - Finance: General Capital Expenditure Guidelines Summary - Engineering
Services
CEOF6636 - Finance: General Capital Expenditure Guidelines Summary - Customer and
Corporate Affairs
CEOF6637 - Finance: General Capital Expenditure Guidelines Summary
CEOF6638 - Finance: General Capital Expenditure Guidelines Summary - Corporate and
Commercial Services
CEOF6639 - Finance: General Capital Expenditure Guidelines Summary - Corporate and
Business Strategy
CEOP2008 - Network: Capital Expenditure
CEOP2191 - Corporate Finance: Business Case
CEOP8019 - Networks: Capital Contributions
CEOP8018 – Networks: Asset Management
CEOP2133 – Disposal: Management of Unserviceable Distribution Transformers
CEOP2438 – Procurement: Corporate Procurement
6 REVISIONS
Issue Number Section Details of Changes in this Revision
2 All Update to rebrand to Essential Energy